Just as the city of Atlanta’s largest pension board began demanding answers from financial adviser Larry Gray, he walked away instead of answering.
Gray resigned his firm’s role as adviser to the city’s $1.2 billion General Employees’ pension board Monday, two days before board members expected him to explain why he did not tell them — or federal and state regulators — about $425,000 in federal tax liens filed against his Roswell home and his $1 million settlement of a lawsuit that accused him of fraud.
Some board members say they also want to pull the pension’s money out of an investment fund that Gray’s firm created and manages.
And Mayor Kasim Reed said he hopes Gray is soon out as adviser to the city’s other two pension boards.
“I’m hoping the Police and Fire Pension Boards follow suit, with similar actions that produce the same result,” Reed said in a prepared statement.
The city’s pension boards became aware of Gray’s personal financial issues from a story in The Atlanta Journal-Constitution last month. Gray has acknowledged that he is still paying off the liens and the legal settlement. But he has said he was advised he did not have to disclose them.
In July, the AJC also reported concerns by some board members that Gray recommended his firm’s investment fund without adequately disclosing its financial stake.
Since the July story, the U.S. Securities and Exchange Commission has subpoenaed documents from at least three public pension systems that are advised by Gray & Co. and have invested tens of millions of dollars in its funds.
Atlanta’s General Employees’ board last week called a special meeting, during which it requested the city’s law department find firms capable of performing a detailed audit of its investment in the Gray & Co. fund. The board has committed $28 million, although only $10.4 million has been paid in at this time.
Gray did not respond to emailed questions from the AJC.
His letter says the resignation is “effective immediately.”
“…(D)ue to the recent concerns by some board members and the negative publicity regarding our relationship, we believe that the relationship has become unworkable and is no longer in the best interest of the city of Atlanta General Employees’ Pension Fund or Gray & Company,” the letter says.
Gray & Co. was paid $157,000 annually for its advice to Atlanta’s General Employees board. But the firm will make much more from the pension’s stake in the investment fund. It will get $280,000 a year in fees, plus 10 percent of the profits after an initial threshold.
Board member Angela Green filed a complaint with the SEC, saying Green did not disclose his firm’s financial interest at the time he recommended the investment.
Green and board member Gregory Nash told the AJC Tuesday they hope the investment can be reversed.
“I want to know what the contract says and how we can revoke it,” Nash said. “He resigned, but we’ll still be paying him for the next 10 years.”
It’s unclear whether the board can pull out, since board chairman Alfred Berry Jr. and Atlanta Chief Financial Officer Jim Beard signed a contract committing the money to Gray’s fund.
Berry said he’s not surprised that Gray resigned instead of answering the board’s questions.
“Everything I’ve read seems to suggest that Mr. Gray has amnesia with respect to some of the things that have taken place,” Berry said. “So that’s par for the course.”
Gray also convinced the city’s Police and Firefighter pension boards to invest a combined $36 million into his company’s fund, with the same fee and profit arrangement. His firm is paid a combined $243,000 for advising those boards.
Tony Biello, a retired lieutenant who is co-chairman of the police pension board, said his group is taking a wait-and-see approach to the federal probe and the disclosure issues. Biello said his board has provided documents requested by the SEC.
“I do not want him to resign from (advising) my board, because he has been a blessing,” Biello said, adding that he welcomes the federal investigation. “I think it’s going to clear everything up. …I just can’t see a guy as smart as Larry Gray making a mistake like that. He’s way too cautious, way too meticulous.”
Beard, who serves on all three of the city’s pension boards, has requested a forensic audit of the General Employees’ pension money in Gray’s fund. The city’s law department is expected to provide a list of firms capable of performing that work and the cost of it at Wednesday’s meeting.
The forensic audit is expected to cost more than $20,000.
A forensic audit requires detailed interviews and a thorough reconstruction of emails, bank records and other documents, said Karen Fortune, a partner with IAG Forensics, a Marietta firm that specializes in forensic accounting.
Earlier this year, the Pontiac, Mich. employees pension system — also advised by Gray — considered a board member’s proposal to conduct a forensic audit of its $6 million investment in one of Gray’s funds. That board declined because of the cost and other factors.
Gray & Co. also advises pension systems for Grady Hospital and Fulton County Schools.
Grady Hospital’s pension plan last year backed out of an agreement to invest $6.8 million in Gray & Co.’s fund, after objecting that the firm hadn’t been clear about its financial stake. The contract was rescinded before any money was invested.
Fulton County Schools decided not to invest in Gray’s fund because of the conflict between his firm advising the board and profiting from the investment. Greta Tinaglia, its executive director, said she expects her board to begin soliciting proposals from other financial advisers by early next year because of all the controversy.
“There’s understandably a lot of concern,” Tinaglia said.